Mehul Dani: How will Budget 2017-18 facilitate credit growth for banks?Mayank Mehta: The budget is progressive with its emphasis on inclusive development while being fiscally prudent. It has given special emphasis to development of infrastructure, agriculture, the rural economy and the MSME sector. As activities in these spaces get a boost, demand for credit is expected to get traction.
Harideesh Kumar B: This year’s budget was formulated against risks of global slowdown and turbulence, likely increase in policy rates in 2017 by the US Federal Reserve, uncertain crude oil prices, rising protectionism and additional fiscal burden due to 7th Central Pay Commission recommendations and OROP. The union budget has several welcome proposals, such as, `221,246 crore total outlay for infrastructure, amendments in Motor Vehicles Act to open up the road transport sector in the passenger segment and revival of unserved and underserved airports. The target amount to be sanctioned under Pradhan Mantri Mudra Yojana has been increased to `180,000 crore and there are various measures aimed at promoting affordable housing. All these steps would help credit growth in banks.

What increase in credit flow to agriculture, SMEs, industries and retail do you expect from the budget provisions?Mayank Mehta: After demonetization, banks are flushed with low cost deposit and banking system expects to retain this deposit for coming 5-6 months. This surplus fund has resulted in softening of interest rates. For agriculture, the budget has provided for an all-time high farm credit target of `10 lakh crore in FY 2017-18. Bank of Baroda’s share in agricultural credit of the banking system has increased from 4.8% in November 2015 to 5.3% in November 2016 registering a growth of 22.2% vis-a-vis banking system growth of 10%. At present, we are financing micro irrigation in a big way in Rajasthan. The provisions related to expanding the scope of crop insurance and micro irrigation will be of good help. We will try to leverage the micro irrigation fund by exploring possibility of refinance or other ways. The SME segment is expected to get a boost with the reduction in the applicable corporate income tax rate and the enhancement of limit under the CGTSME scheme. Under retail, we at present are offering one of the most competitive rates for home loan and car loan. The tax reduction in income tax for small companies and individuals is expected to increase our retail portfolio. We are centralizing the loan processing system with a view to reduce turnaround time.Harideesh Kumar B: Union budget 2017-18 focused on key areas such as agriculture, job generation, infrastructure, housing for all and digital economy while maintaining fiscal discipline. The continued spending on rural infra and social schemes is likely to be a key driver for the consumption demand. Similarly, the infrastructure theme focus is likely to be driven by increased allocation to roads, railways, energy and broadband infrastructure. The Budget measures are expected to boost the credit demand across the sectors like, agri, MSME and industrial sectors. As the measures taken in the budget are expected to create job creation, we may expect an increased spending there by creating a demand for retail lending.
Which particular industries are expected to drive credit demand this year?Mayank Mehta: Credit demand is a function of multiple factors including the overall growth prospects, sustained traction in global trade and industry specific factors and these things are quite dynamic in nature. Nonetheless, we look forward to credit demand in 2017-18 to emanate from manufacturing (pharmaceuticals, engineering and automobiles), selectively in infra projects including infrastructure – defense equipment manufacturing, power, commercial real estate, automobiles, renewable energy, IT and IT enabled services and trade finance and channel financing, at a good pace.
Harideesh Kumar B: Focus of budget on the rural, agriculture and social sector and on skill development is positive. In corporate and industry, the overall impact is positive for cement-construction (provision of `241,387 crore in FY18 for transportation including rail, roads and shipping), affordable housing, oil & gas, capital goods, automobile sector, iron & steel and power. National Housing Bank to refinance individual housing loans of about `20,000 crore in FY18. It is proposed to feed about 7000 railway stations with solar power in the medium term. Solar is now being integrated across sectors road, port, rail, etc.

What is the ratio of credit demand to be generated from rural India, urban India and semi urban India?Mayank Mehta: 34% (1822) of our branches are located in rural area and 28% (1495) are located in semi urban area. With the special focus on agriculture and rural sector given in the budget 2017-18, major demand is expected from the rural and semi urban areas. With favorable monsoon and satisfactory agriculture production, we expect revival in the rural economy. Other sectors such as automobiles, housing, consumer durable etc are also expected to get boost, reviving the credit requirements from rural and semi urban areas. Greater availability of funds to MFIs will expand the cash flows of MSMEs. Incentives for higher spending in the rural economy will lead to an increase in demand for tractors, microfinance, and 2-wheeler loans. The credit from urban and metro area is likely to pick-up in view of the expected GDP growth and thrust given for affordable housing and other infrastructure projects.Harideesh Kumar B: About 61% of branches are situated in rural and semi urban areas, where as 39% of branches are in urban/metropolitan areas. Agriculture contribute to 23% of our advances. With increased outlay under agriculture disbursement, increase in irrigation area, stress on agro-processing units and allied activities, we expect agriculture contribution to reach 30% of advances in our bank by March 2018. With incentives given to housing and other sectors, credit off take in retail section is also poised for takeoff in urban/metro area besides in upcoming town situated in semi urban areas.